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Diamonds

Diamonds: The unassuming safe haven

The closure of the Argyle diamond mine saw a drastic drop in the global supply of pink diamonds, but Australian yellow and blue diamonds might be the next big investment. 

When the Rio Tinto’s Argyle diamond mine stopped operating November 2020, it took 90 per cent of the world’s pink diamond supply with it. 

Although its impacts were felt around the world, the closure itself was not a shock, according to diamond specialist Eric Kariuki.

“Rio Tinto is ASX-listed, and they announced how much is left,” Kariuki told Australian Resources & Investment. 

“We knew the closure was coming for a while so there’s been a lot of exploring over the years, but no other diamond mine has been found in Australia that can replace it.”

The Argyle mine wasn’t the only diamond deposit in the country, though it was the largest. 

Lucapa Diamond Company acquired the Merlin project in the Northern Territory back in May 2021. 

The NT has the second highest deposits of known diamond resources in Australia, according to the Territory Economic Reconstruction Commission’s final report in December 2020.

However, new diamond mines can take more than a decade to reach a consumer sale stage. And there’s no guarantee a mine will result in pink diamonds.

“If you do find a mine, it could be another five to seven years of construction before production can even begin, and then another decade before anything comes out of the ground,” Kariuki said. 

“And if Argyle is anything to go by, there’s a less-than-one-per-cent chance of any pink diamonds.”

Although prospects may sound dire, those keen to invest in coloured diamonds don’t need to worry too much. As always, pink diamonds are dominating, but the popularity and price of yellow diamonds is on the rise. If the Australian market continues to produce more, investors could see some strong returns.

“My job is to look at which diamonds will return the best investments for my clients and I’m watching the yellow diamonds very closely,” Kariuki said. “They’re still tracking at about 3.5 per cent.”

India Bore Diamond Holding’s Ellendale mine in Western Australia was once famous for its fancy yellow diamonds and with production slated to re-start before the end of 2022, the annual growth of yellow diamonds should see a steady increase. The fact any diamonds coming from Ellendale will be Australian diamonds will add confidence to this growth.

“People value Australian diamonds more than diamonds sourced from elsewhere,” Kariuki said. 

“Australian diamonds are good quality and are ethically sourced. Those two factors produce the right ingredients for a very good investment portfolio.”

Argyle held the monopoly on most coloured diamonds in Australia, including red, champagne and violet, but most of the intense yellow diamonds are found in South Africa. The deeper the hue of the diamond, the more valuable it is, and those who don’t want to wait for production at Ellendale to start up again could turn their attention there.

South African mines are also known for their blue diamonds. April 2022 saw the world’s largest blue diamond, the De Beers Cullinan Blue, sell for an astonishing $80 million.

The 15.1-carat diamond was unearthed in 2021 at South Africa’s Cullinan mine and the estimated sale price stood at $48 million. 

However, those not willing to fork out that much for a diamond shouldn’t be put off from investing. Diamond auctions rarely represent real market conditions, as few meet the rarity in colour and size that the De Beers example did. However, investors can nonetheless expect to see prices rise for the blue gems.

“This sets a precedent for what will come next,” Kariuki said. “As an investor, I see the results of this and I know I have a limited window to collect as many (blue diamonds) as I can before the new carat price filters through the market.”

The Argyle diamond mine in Western Australia.

Natural blue diamonds can only be found in a handful of mines in the world, and only a few are discovered each year. The rarity of blue diamonds makes them a striking investment.

Formed beneath the earth’s surface over billions of years, blue diamonds are not colour-treated, instead attaining their hues from traces of boron in their carbon composition. These blue gems can be found in a variety of colours, from faint blue to fancy vivid blue. The De Beers Cullinan Blue is a fancy vivid blue diamond

Blue diamonds could be found at Argyle when it was still in operation; however, it has been said that for every 25 million carats of diamonds extracted, only a single blue diamond is found. With Australia one of only three countries where blue diamonds can be found, the price fetched for the De Beers Cullinan Blue is less of a surprise.

“A sale like this creates a new trend for that colour diamond,” Kariuki said.

Kariuki encouraged investing in diamonds due to their safety and security. As geopolitical disruptions continue to affect the global economic landscape, investors want to put their money into something that won’t move.

This type of thinking was especially evident during the global financial crisis (GFC), as prices of pink and blue diamonds remained steady. These fancy-coloured diamonds are an alternative asset that are stable performers in a market downturn and are attractive investments to diversify a portfolio.

It is unclear when, if ever, the retail prices of diamonds will decrease. Demand for diamond jewellery rose 21 per cent globally in 2021, well above pre-pandemic levels, with no sign of stopping. The Russia–Ukraine conflict has also made the market more volatile, especially after sanctions were placed on a Russian company that supplies 30 per cent of the world’s diamonds. 

With these sanctions in place, the origin of diamonds is becoming more important, and investors are seeking to ensure their acquisitions are coming from ethically sourced places. 

Investors want safety and security, and they don’t want their money to sit in the bank collecting dust. Diamonds are a growth asset and can do well when sold into a secondary market.

While the world might have lost a staple of the diamond mining industry when Argyle closed, investment opportunities are steady. Diamonds are inflation-proof, physical assets that are good choices for those keen to keep a hold of their investments instead of rows of stocks on a computer screen. 

These small gems can hold big opportunities for those who want them.  

This feature appeared in the June issue of Australian Resources & Investment.

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